The Bank of England has voted 7-2 to increase interest rates to 4.25%, marking the 11th increase since December 2021.

This decision comes in response to an unexpected rise in inflation, which now stands at 10.4% according to data from the ONS.

Economists had previously anticipated a pause in interest rate hikes, believing that inflation was on a steady decline.

However, the recent rise in inflation, following a 41-year high of 11.1% in October, has put the Bank of England under pressure to take action to regain control over the situation.

The US Federal Reserve has also been battling inflation, raising interest rates for the ninth consecutive time.

Despite recent turmoil in the banking sector following the collapse of two regional banks, the Federal Reserve remains committed to addressing high inflation, stating that “some additional policy firming may be appropriate.”

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Nicky Stevenson, managing director at national estate agent group Fine & Country:

“Yesterday’s unexpected hike in inflation has convinced rate-setters that now is not the time to call a halt on interest rate rises.

“It will be another bitter blow to homeowners on variable rates and tracker mortgages, who would have been optimistic that uncertainty in the banking sector might have put a pause to these successive interest rate rises.

“Instead, with inflation still hovering in the double-digits, they face yet another painful squeeze on their household finances.

“Meanwhile, prospective home-buyers will have been glad to see that the average fixed rate mortgages reached a six-month low this week. They will be watching closely to see whether this latest rate rise causes them to move in the opposite direction. 

“If they remain stable, this will inject another dose of confidence into the property market just in time for the busy Easter period.” 

Reece Beddall, sales and marketing director, Bluestone Mortgages:

“While today’s decision is clearly in response to inflation’s surprise jump to 10.4%, it will be a tough pill for consumers to swallow nonetheless. Interest rates have risen consecutively for almost a year, pushing mortgage repayments higher still and putting a chokehold on people’s personal finances. Affordability challenges will no doubt remain for the foreseeable future. 

“For those who are struggling amid the current economic environment, know that there is still help at hand. For those customers experiencing difficulty keeping up with their mortgage repayments, it’s vital to get in touch with their lender as soon as possible, and for those looking to take their first or next steps onto the property ladder, speaking with a mortgage broker is a sensible step. It is the duty of our industry and at the heart of what we do to ensure customers are signposted to the appropriate support to help make their homeownership dreams a reality.”

Stuart Wilson, chair of Air Club:

“With concerning noises across the global banking sector this month and the recent news that the Fed will hike rates in spite of an unsettled market, it’s fair to say that this MPC decision has attracted more interest than the last.

“The situation is becoming more complex every day, putting greater pressure on advisers to explain the facts as they matter to their clients, their savings and their future options. With the volatility of the mini-Budget now in the rearview mirror – and fresh from the Chancellor’s newly laid plans last week – the outlook for the months ahead is a positive one for the sector, but the importance of specialist advice is at an all-time high.”

Adam Ruddle, chief investment officer at LV=:

“The Bank of England’s decision to raise interest rates by 0.25 percentage points is in line with our expectations. The Bank is in a difficult predicament. On the one hand, inflation in February unexpected increased leaving the UK inflation higher than the US and Eurozone.  On the other hand, there are some signs that previous increases are weakening the housing sector and hurting the economy; added to that, the recent banking turmoil is in itself a disinflationary pressure. We believe the Bank has sought to balance these considerations whilst remaining clear that managing inflation down is its key responsibility – even if that means subdued economic growth. 

“While an increased rate helps tackle inflation it hinders economic growth, increases mortgage payments and squeezes living standards. This week’s figures showing a rise in inflation shows that rising prices remains a stubborn, and potentially domestic, problem. I believe the Bank may continue to raise interest rates to 4.5% over the coming months.”

Avinav Nigam, cofounder of real estate investment platform, IMMO:

“This latest increase in interest rates was expected given February’s uptick in inflation to 10.4%. Unfortunately, rising interest rates have major consequences for the housing market. There is an immediate increase in the cost of mortgages for the circa 2 million borrowers on variable-rate mortgages, which could mean an increase in the supply of properties for sale, with negotiating power shifting to buyers.

“Even so, a significant reduction in property prices is not anticipated since demand for homes is strong and continues to grow. Higher interest rates, alongside labour and material price inflation, mean that building new homes is getting harder and more expensive. Many projects are being paused, reducing future supply further still.

“Higher interest rates further reduce aspiring homebuyers’ ability to afford to purchase a home, reducing demand. The result of this is more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock. Institutional investors appreciate that as interest rates rise, investing in and improving rental housing makes even more sense commercially and socially.”

Alex Lyle, director of Richmond estate agency Antony Roberts:

“A hold in base rate would have been very well received, helping support the momentum we are currently seeing in the housing market, with prices holding up on large family homes with A-star addresses and the volume of sales in the first quarter up considerably compared with the same period last year.

“Even though some areas have proven remarkably resilient to increasing interest rates, this has been less the case the higher they have risen. Further rate rises are most unhelpful so hopefully base rate is close to its peak.”